First-time buyers in England can apply for the next iteration of the Help to Buy equity loan scheme from today.
Buyers who reserve homes now will be able to move in on 1 April, the scheme’s official launch date.
Here, Which? explains why Help to Buy is changing and whether the new rules will be good news for first-time buyers.
What is Help to Buy?
Buyers could benefit from a 20% equity loan from the government (40% in London) and get a mortgage for the remaining 75%. The loan was provided interest-free for the first five years.
As of June this year, 278,639 homes had been bought using equity loans, with 82% of purchases made by first-time buyers.
- Find out more: Help to Buy equity loans
What’s changing with Help to Buy?
From 1 April, Help to Buy will only be available to first-time buyers, and regional price caps will be introduced, limiting how much developers can charge for homes sold under the scheme.
The price caps were set at 1.5 times the average first-time buyer price in each region when the scheme was first announced in Autumn 2018. The caps are as follows:
|Yorkshire & The Humber||£228,100|
|East of England||£407,400|
From today, first-time buyers can apply for properties sold under the new scheme. Those who reserve will be able to move in when the scheme officially opens on 1 April. The new version of Help to Buy will run until 31 March 2023.
Why is Help to Buy changing?
The Help to Buy premium
Help to Buy has been very popular with first-time buyers, but developers have faced accusations of inflating the cost of new-build homes, resulting in the government bringing in price caps.
Exclusive Which? research earlier this year found that one in seven homes purchased using Help to Buy was resold at a loss, despite average house prices rising significantly during the same period. This amounted to more than 5,000 Help to Buy homes falling in value.
Helping the wrong people
The move to restrict the scheme to first-time buyers comes after criticism that many people who used Help to Buy could have afforded to buy a home on the open market and therefore didn’t require a 20% loan from the government.
The government’s most recent data shows that around 13,000 people with annual household income of more than £100,000 have used Help to Buy to date.
Will developers use the new scheme?
The price caps are being introduced to limit the cost of Help to Buy homes, but it’s possible that the smaller margins on offer may put developers off, resulting in fewer properties being sold under the scheme.
The government has faced questions over its move to base the price caps on house prices in 2018 rather than the scheme’s launch date.
A report by the estate agency Hamptons International last year claimed the caps were too low in the North of England. It said this could mean developers may not be able to build in some areas or will need to build flats rather than houses.
How to apply for Help to Buy
The government says first-time buyers thinking of applying for Help to Buy should ensure they meet the following criteria:
- You have a deposit of at least 5% of the property’s value
- You can afford to pay a fee of up to £500 to reserve the property
- You can afford to pay other costs of moving, such as stamp duty, mortgage fees and legal fees.
Buyers should follow these four steps to apply:
1. Find a home and apply
Find a suitable Help to Buy property. You can search for Help to Buy homes online or through developers, who will display the scheme’s logo on their adverts.
Once you’ve visited the show home and chosen your property, you’ll need to pay a fee (capped at £500) to reserve it. This will be refunded if you’re not approved for an equity loan.
You’ll now need to complete a Property Information Form to apply. You’ll need to prove details such as your income, deposit and the mortgage you propose to take out. Don’t formally apply for your mortgage yet.
2. Get ‘Authority to Proceed’
The Help to Buy Agent will ensure you’re eligible for the scheme and assess your affordability. If your application is approved, you’ll be given Authority to Proceed (ATP), which will be valid for three months.
You can now formally apply for your mortgage and appoint your conveyancer.
3. Mortgage offer and exchange
Your conveyancer will complete all of the legal particulars, including checking the property sale contract and making sure your mortgage offer adheres to the rules and will set an exchange date with the Help to Buy Agent.
Upon exchange of contracts, you’ll be legally bound to buy the home by an agreed date (the completion date). You’ll need to ensure this date is before your mortgage offer expires. At this point, you pay your 5% deposit.
Once you’ve exchanged contracts you can visit your new home to confirm any last-minute details or changes.
On completion, your mortgage lender will release the remaining funds, allowing you to buy the home. The government will now pay your equity loan to the developer and you’ll legally own the property.
Alternatives to Help to Buy
Help to Buy has been very popular with first-time buyers over the last seven years, but it’s by no means the only option available.
When weighing up whether the scheme is right for you, consider these alternatives
It’s nigh-on impossible to get a mortgage with a 5% deposit at the moment, but a steady stream of banks are now relaunching their 90% deals.
If you’re not set on a new-build home and can save a 10% deposit, you might find that a traditional mortgage will give you more options and cost you less in the long run.
Shared ownership schemes allow you to buy a share of a property (sometimes as little as 25%) from a housing association, and pay rent on the remainder.
These schemes can be a route on to the ladder in expensive city markets, but the combined cost of your mortgage, rent and service charge can be very expensive.
Concerns have also been raised about some blocks containing shared ownership properties having safety issues with their cladding.
Guarantor mortgages come in all shapes and sizes, but most commonly require parents to use either their savings or property as security on their child’s mortgage.
Help to Buy schemes around the UK
Help to Buy in Scotland
Help to Buy Scotland also allows first-time buyers and home movers to purchase a new-build property with a 5% deposit and a 15% equity loan. The scheme includes properties priced up to £200,000 and will run until at least March 2022.
The biggest contrast with the English scheme is that equity loans in Scotland are provided interest-free for their full term, rather than just the first five years.
- Find out more: Help to Buy Scotland
Help to Buy in Wales
Help to Buy Wales offers a 20% equity loan to first-time buyers and home movers. As with England and Scotland, it’s available on new-build properties, but with a price limit of £300,000.
The equity loan is provided interest-free for the first five years.
- Find out more: Help to Buy Wales
Forces Help to Buy
Forces Help to Buy allows Armed Forces personnel to borrow up to 50% of their salaries on an interest-free basis to fund a house deposit. The maximum loan available is £25,000, which must be repaid over 10 years.
The scheme is set to run until the end of 2022.
You can learn more about the rules in our full Help to Buy guide.